FEDERAL TAXES • the Supreme Court’S Ruling in Windsor Applies Only to the Federal Government

The Supreme Court victory in United States v. Windsor striking down the discriminatory federal Defense of Marriage Act (DOMA) affirms that all loving and committed couples who are married deserve equal legal respect and treatment from the federal government. The demise of DOMA marks a turning point in how the United States government treats the relationships of married same-sex couples for federal programs that are linked to being married. At the same time, a turning point is part of a longer journey, not the end of the road. There is much work ahead before same-sex couples living across the nation can enjoy all the same protections as their different-sex counterparts.

Keep in Mind: FEDERAL TAXES • The Supreme Court’s ruling in Windsor applies only to the federal government. It does not change discriminatory state laws excluding same-sex couples from state-conferred marriage rights. IMPORTANT TAX DISCLAIMERS • The ruling striking down DOMA will not be effective until 25 days This guidance is intended for general information purposes. It should not be construed from the decision. Even when effective, federal agencies—large bureaucracies—may need and take some time to change forms, as legal advice or a legal opinion on any specific facts or circumstances, and does not implement procedures, train personnel, and efficiently incorporate create an attorney-client relationship. same-sex couples into the spousal-based system. Because sound legal advice must necessarily take into account all relevant facts and • Until same-sex couples can marry in every state in the nation, there will be uncertainty about the extent to which same-sex spouses will developments in the law, the information you will find in this guidance is not intended receive federal marital-based protections nationwide. For federal to constitute legal advice or a legal opinion as to any particular matter. programs that assess marital status based on the law of a state that does not respect marriages of same-sex couples, those state laws Any tax information included in this document was not intended or written to be used, will likely pose obstacles for legally married couples and surviving and it cannot be used, for the purpose of avoiding tax-related penalties under the Internal spouses in accessing federal protections and responsibilities. Revenue Code (Code). • Securing fair access to federal protections that come with marriage for all same-sex couples in the nation will take some time and work. In some situations, it may require Congressional action or formal rule-making by agencies. Marriage Matters For Federal Taxes • Before making a decision, it is essential that you consult an attorney A 2004 government report identified 198 separate Code provisions tied to marital status, for individualized legal advice. This is particularly important for people who are on certain public benefits, as getting married may highlighting the dramatic impact of marriage on personal taxes. Rep. “GAO-04-353R jeopardize your eligibility without providing you the full measure Defense of Marriage Act - Update to Prior Report” (Jan. 24, 2004), see www.gao.gov/ of protections other married couples enjoy. In addition, couples who travel to another place to marry and then return to live in a new.items/d04353r.pdf. state that does not respect their marriage may be unfairly unable to obtain a divorce, which can lead to serious negative legal and Summarized below are a few of the many tax issues potentially affecting married same-sex financial consequences. People must make careful decisions when couples now that DOMA has been invalidated. In all likelihood, there will be specific and where to marry, even as we work together to end this injustice. guidance forthcoming from the Internal Revenue Service (IRS) before the next income • We are committed to winning universal access to federal marital tax filing deadline for tax year 2013. For personal advice on income tax, gift tax, or estate protections for married same-sex couples through ongoing public tax – federal or state - please consult a tax advisor. State income taxes are not addressed in policy advocacy, and, where necessary, strategic litigation. Contact our organizations if you have questions, for updates and to learn this guidance. This is not legal or tax advice. more about what you can do to achieve full equality for those who are LGBT. This Guidance is intended to provide general information regarding “MARRIED” FILING STATUS FOR FEDERAL INCOME TAXES major areas of federal marriage-based rights and protections based on how the various federal agencies have administered federal benefits. It “Filing status” refers to whether you identify yourself as “single,” “head of household,” should not be construed as legal advice or a legal opinion on any specific facts or circumstances, and does not create an attorney-client “married filing jointly” or “married filing separately” on your federal income tax returns. relationship. Past practice is no guarantee of future developments. Only married couples can file as married, whether jointly or separately. The filing statuses While laws and legal procedure are subject to frequent change and of “single” or “head of household” are generally reserved for unmarried persons. DOMA differing interpretations in the ordinary course, this is even more true now as the federal government dismantles DOMA and extends federal barred married same-sex couples from filing as “married,” whether jointly or separately. protections to same-sex couples. None of the organizations publishing this information can ensure the information is current or be responsible In general, your filing status is determined on the last day of the year. If you are married for any use to which it is put. on the last day of the year, you will be considered married for the entire year. Alternatively, No tax advice is intended, and nothing therein should be used, and if you are single on the last day of the year (if you got divorced, for example) you will be cannot be used, for the purpose of avoiding penalties under the Internal considered single for the entire year. There are some exceptions to these rules, so check Revenue Code. with your tax advisor if you have a question about your filing status. Contact a qualified attorney in your state for legal advice about your particular situation.

Now that DOMA has been ruled unconstitutional, we believe that the Q. I used to live in a state with marriage for same-sex couples IRS will instruct married same-sex couples to file their 2013 income taxes and married there, but have since moved to a state that does as “married”—whether jointly or separately—rather than as “individual” not recognize marriages of same-sex couples. Am I eligible to or “head of household,” provided that the IRS recognizes the marriage. See be treated as a spouse for tax purposes? below for important information about how the IRS assesses whether or A. As stated above, the IRS has a practice of using a place of domicile rule for not a person is “married” for tax purposes. assessing marital status, but not in the case of common law marriages. We For those marriages recognized by the IRS, tax preparation should be should await guidance from the IRS on this point. In our mobile society, we simpler and less expensive than it was with DOMA. The questions that believe it would make more sense for the IRS to use a place of celebration have faced married same-sex couples at tax time, like “who claims which rule for all marriages and not just for “common law” marriages, rather than child” and “how much of the mortgage deduction or charitable deduction to treat married people as unmarried for tax purposes when they cross state do we each take” are eliminated for married same-sex couples who may lines. If you encounter problems or questions, contact a tax advisor and a now take these deductions together in one joint return. legal organization listed below.

WHO DOES THE IRS COUNT AS MARRIED FOR FEDERAL Q. I live in a state that does not recognize marriages of same- TAX PURPOSES? sex couples, but I traveled elsewhere to marry. Am I eligible to be treated as a spouse for tax purposes? This is a critical question to answer before filing your 2013 income taxes, and we expect guidance from the IRS on this point. There may be a A. As stated above, the IRS has a practice of using a place of domicile rule period of uncertainty because under current IRS practice, a person can for assessing marital status, but not in the case of common law marriages. We file his or her income tax return as “married filing jointly” or “married should await guidance from the IRS on this point. filing separately” if the individual is considered married in his or her state of domicile (essentially, the permanent residence/primary home). That practice seems to suggest that only people in states that license or WILL I OWE MORE OR LESS FEDERAL INCOME TAX NOW recognize marriages of same-sex couples and in D.C. can expect to be THAT I CAN FILE A JOINT RETURN WITH MY SPOUSE? treated as married by the IRS. However, there is no statute or regulation Every couple’s situation is unique and may also change from year to year. requiring this approach. In addition, the IRS does not always follow For an individualized income tax analysis, consult a qualified tax advisor. this practice. For example, the IRS recognizes “common law” marriages Joint filing tends to favor married spouses with very different incomes (e.g. for federal tax purposes no matter where a couple lives as long as their where one spouse earns little or no income and the other earns income to marriage was valid where entered. This will likely be an evolving area support the family). Joint filers will generally oweless income tax than of law and you should consult with a qualified tax expert about your they would as single taxpayers. This is because the IRS effectively treats the circumstances. The legal organizations listed here also hope to provide combined income of married couples as if each spouse earned half, even if, more information as the situation develops. in reality, one earned nothing and the other earned, say, $80,000. With each spouse treated as having earned $40,000, the couple can take advantage of a lower tax bracket and rate than would a single person who earned $80,000. Q. I married in a state that recognizes marriages between spouses of the same sex, and I still live in such a state. Am I Note that for some taxpayers—specifically those in marriages in which eligible to be treated as a spouse for tax purposes? both spouses are high earners—married status filers generally will owe more income tax under the “married filing jointly” status than they would if they A. Yes. filed two separate returns under the “single” filing status. The reason for this “marriage penalty” is that joint return income thresholds (i.e., the income Q. I live in a state with a Civil Union or Registered Domestic level at which the next marginal tax bracket applies), while higher than Partnership system, and my partner and I have entered into unmarried individual return thresholds, are not twice as high. Thus, some that status. Am I eligible to be treated as a spouse for tax high-earning married taxpayers, whether they file as “married filing jointly” purposes? or “married filing separately,” will pay higher rates of tax than they would if they were unmarried individual filers. A. As stated above, the IRS has a practice of using a place of domicile rule for assessing marital status, but not in the case of common law marriages. We should await guidance from the IRS on this point. In WITH DOMA GONE, ARE THERE ANY STEPS I NEED TO TAKE addition, certain authorities have indicated that partners in a civil union NOW WITH RESPECT TO MY 2013 FEDERAL TAXES? are not spouses eligible to be treated as “married” for federal tax purposes. Your 2013 taxes are not due until April 15, 2014, but if you earn wages as an On the other hand, the Chief Counsel of the IRS in Illinois stated in a employee, you may want to consult a tax advisor about whether to change letter that a heterosexual couple joined in civil union, which Illinois had your filing status and claimed allowances on Form W-4, which may affect your recognized “as husband and wife,” were permitted to file federal returns withholdings. You also may want to consult a tax advisor if you pay estimated with the filing status “married filing jointly.” If a person encounters income taxes on a quarterly basis about whether to change the amount of these problems or questions, they should contact a tax advisor and a legal payments. organization listed below. If you have not yet filed your 2012 federal income tax return because you obtained a six month extension, you should consult your tax advisor before filing about what is the correct filing status and compute your income accordingly.

See below if you are considering filing amended returns for a tax refund with I live in a community property state that permits same-sex respect to earlier tax years. couples to marry or register as domestic partners. Will this ruling affect how much income I report on my Federal return?

WHAT ARE SOME OF THE OTHER DIFFERENCES FOR SAME- It depends. We do not yet know how long it will take for the IRS to release SEX COUPLES IN BEING TREATED AS “MARRIED” FOR instructions about how married same-sex couples should file in community FEDERAL TAX PURPOSES? property states. But, if you are married and recognized as married in the state Apart from tax rate schedules, there are numerous other ways in which your where you live, we expect that the IRS will instruct you to file federal income taxes marital status may affect your federal taxes depending on your individual as a married couple. You will then be able to combine your income and file one circumstances. For those persons the IRS regards as “married,” for example: return just as other married couples if you use the “married filing jointly” filing status. If you file jointly, you will avoid the need to engage in a process known as • Standard Deductions. Taxpayers can either take “itemized deductions” income-splitting, in which all community income earned by both individuals is found on Schedule A of the federal income tax return, or a “standard added together and half is allocated to each individual. If you use the “married deduction,” whichever is greater. The standard deduction is a fixed filing separately” filing status in one of these community property states, then the dollar amount based on filing status plus some specific adjustments. same rules that apply to different-sex couples who use this status also will apply to For 2013, the standard deduction is $12,200 for joint filers, exactly you. This means you will apply income-splitting to your separate returns, unless double the $6,100 deduction available to “single” or “married filing an exception applies. For example, you may have entered into a valid pre-nuptial separately” filers. or post-nuptial agreement opting out of the community property system. • Pooled income and deductions. Only married couples filing jointly If you are in a registered domestic partnership (or another union recognized as may combine spouses’ income and expenses to be taken into account for a registered domestic partnership) in a community property state and are not computing deductions or credits on a return. For example, the itemized married, you will likely use the “single” or “head of household” filing status and deduction for medical and dental expenses on Schedule A permits joint income-splitting will likely apply. It is too early to tell if the IRS will or will not filers to combine their qualifying medical and dental expenses. But this allow registered domestic partners to file a joint return. deduction is limited if the couple has a comparatively high aggregated adjusted gross income (“AGI”). Only medical and dental expenses that In 2010, the IRS announced that it would recognize the community property exceed a certain percentage of the joint filers’ AGI (7.5% of AGI in rights of same-sex couples, including those who were married or in registered 2012 and 10% in 2013) may be deducted. domestic partnerships. This was consistent with the longstanding rule thatstate law determines ownership of property, while federal law determines how much • Income associated with employer-provided health insurance. federal tax the owner must pay. Because DOMA did not bar the IRS from Married same-sex couples should no longer have to pay income taxes applying income-splitting to same-sex couples, the ruling striking down DOMA on the value of employer provided insurance to an employee’s spouse. should not change how the IRS treats same-sex couples’ community property Typically, when an employer provides group health insurance and rights if they continue to file taxes separately. premium contributions for its employees and their spouses, children and other qualifying tax dependents, the value of those benefits is not The following states have community property laws: Alaska (which permits a subject to federal income tax. This tax advantage is now available to community property election), Arizona, California, Nevada, Idaho, Louisiana, married same-sex couples. Under DOMA, the value of the employer- New Mexico, Texas, Washington and Wisconsin. However, only three of those provided health insurance benefits for a same-sex spouse (unless a states—California, Nevada and Washington—currently allow same-sex couples dependent) was taxable income to the employee. either to marry or register as domestic partners and thus be governed by the state’s community property laws. In New Mexico, the Attorney General has issued • Tax-advantaged fringe benefits. Some employer-provided fringe an opinion stating the marriages of same-sex couples performed elsewhere will benefits will be handled differently now that DOMA has been be recognized in the state. Because same-sex married couples in New Mexico invalidated. For example, a married taxpayer/employee may be able are and should be recognized as married in their state, we believe that same-sex to use pre-tax dollars to pay premiums on employer-provided health married couples in New Mexico should file their state and federal tax returns insurance for his or her spouse. Under DOMA, tax-advantaged as married unless there is contrary instruction from relevant state or federal employment benefits were not available to same-sex spouses unless the authorities. spouse qualified as a “tax dependent” of the employee. For more information, go to www.irs.gov/pub/irs-pdf/p555.pdf. • Earned Income Tax Credit (EITC). This is a refundable tax credit available to low- and medium-income taxpayers. Credits may in some cases be higher, and may be obtained at higher income levels, for some How does DOMA’s invalidation affect divorce? joint filers. Divorcing spouses unwinding their economic partnership by dividing marital • Exclusion of gain from sale of principal residence. The Code allows assets should obtain information from qualified professionals about possible tax taxpayers to exclude from gross income the gain from the sale or consequences, which may include: exchange of a principal residence. The exclusion is capped at $250,000 • Transfers of property because of divorce. Property transferred between for individuals and $500,000 for joint returns. Thus, the previous spouses because of a divorce is not subject to income or gift tax. Under inability of same-sex spouses to file joint returns may have resulted DOMA, when a married same-sex couple divorced, transfers of the home in their receiving a smaller exclusion than they would if they were and other assets were taxable events. permitted to file jointly. • Spousal support. If alimony (also known as “spousal support”) or separate Important Note: There are many portions of the Code that differentiate between maintenance payments are paid to a spouse or former spouse under a divorce married and unmarried persons. Consult a tax advisor for more information or separation instrument or court order, the payments are deductible to about how these and many other factors might affect you. the person making the payments on his or her tax returns. The spouse or

former spouse receiving the payments must report the payments as income. consult a knowledgeable tax professional about your circumstances. Under DOMA, the spouse paying alimony could not deduct payments for spousal support. How does DOMA’s invalidation affect estate taxes? • QDROs. Certain retirement assets in the name of one spouse may be viewed as marital property to be divided at divorce. Without DOMA, it A taxable “estate” (the money and assets of the deceased person) may will be easier to divide retirement assets that normally cannot be touched by take an “unlimited marital deduction.” This means that, essentially, the anyone other than the employee/retiree. Through a court-issued “Qualified estate will not incur any estate tax liability with respect to any assets Domestic Relations Order” (QDRO), certain workplace retirement plans left by the deceased spouse to his or her surviving spouse. The “marital belonging to one spouse can be assigned to (or shared with) the non- deduction” effectively permits married couples to postpone federal estate employee/former spouse on a tax-free basis. tax that otherwise would have to be paid on the deceased’s estate because the property passing to the surviving spouse will not be taxed until the A former spouse who receives benefits paid under a QDRO generally must surviving spouse’s death. report the benefits as income. If the employee/retiree (“plan participant”) contributed to the retirement plan, then a prorated share of the participant’s Under DOMA, no marital deduction was available to same-sex couples, cost (investment in the contract) is used to figure the taxable amount. and the value of the assets left to a same-sex spouse was fully included in the taxable estate. As a result, these assets ultimately would be subject to • IRA transfers pursuant to divorce. The transfer of all or part of an interest the estate tax twice; once when the first spouse dies and again at the death in a traditional IRA to a spouse or former spouse, under a decree of divorce of the other spouse. This is the very issue that affected Edie Windsor and or separation or divorce instrument incident to the decree, is not considered reached the Supreme Court: Edie, as executor of her spouse’s estate, paid a a taxable transfer. $363,000 estate tax she would not have had to pay if she had been married to a man. In prior tax years, I paid more taxes than I should have because DOMA disrespected my marriage. What can I do? HELPFUL RESOURCES There may be steps you can take to preserve your rights if you act within the time • General Guides: permitted by law. You can discuss with your tax advisor whether it makes sense for you to pursue a refund claim with the IRS. Taxpayer Advocate Service’s basic guide to taxes: www.taxpayeradvocate. irs.gov/Individuals/Complying-With-Tax-Laws Generally, to make a refund claim for income taxes, an individual must complete an amended tax return for each tax year at issue and send it to the IRS with an and FAQ: www.taxpayeradvocate.irs.gov/Individuals/FAQ. explanation as to why the original filing was incorrect. There is some question IRS publications under “General Information” (www.irs.gov/taxtopics/ about the deadline for filing an amended return when a couple could not file a tc300.html), including “When, Where, and How to File.” tax return as married but now can. Planning conservatively, you should file any amended return within three years of its original due date, as opposed to the extended due date. For example, for the tax year 2010 (where the return was • IRS Pub 17/1040 Guide: originally due April 15, 2011), any amended return would have to be filed by IRS Publication 17 addresses common issues for taxpayers who itemize April 15, 2014. deductions. English version: www.irs.gov/pub/irs-pdf/p17.pdf ; Spanish The IRS has a precise process and required forms for amended returns. For more version: www.irs.gov/pub/irs-pdf/p17sp.pdf. General instructions on information, see the instructions for IRS Form 1040X (www.irs.gov/pub/irs-pdf/ filling out Form 1040:www.irs.gov/pub/irs-pdf/i1040.pdf . i1040x.pdf), and GLAD’s Tax Time and Preserving Your Federal Rights. Note that to recover Social Security taxes paid or taxes imputed on health insurance for a spouse you have to specifically request that such amounts be refunded. • Life Transitions: A taxpayer should also consider potential downsides of taking these steps, such The IRS also addresses how life events make a significant impact on taxes: as an increased risk of audit, possible assessment of a tax deficiency, and in some www.irs.gov/Individuals/Did-you-know-life-events-like-marriage,- instances, the burden, expense, and uncertainty of litigation. divorce-and-retirement-may-have-a-significant-tax-impact%3F. If your spouse died before DOMA was struck down and you think you paid “Divorced or Separated Individuals,” at www.irs.gov/pub/irs-pdf/p504. more in taxes than you should have because of DOMA (e.g., you could not take pdf and www.irs.gov/pub/irs-pdf/p1819.pdf; and an inherited IRA as a spouse), you should consult a qualified tax professional “Exemption, Standard Deduction, and Filing Information,” at www.irs. for advice. gov/pub/irs-pdf/p501.pdf.

How does DOMA’s invalidation affect gift taxes? IMPORTANT TAX DISCLAIMERS As a very general matter, spouses make gifts and transfer property to one another This guidance is intended for general information purposes. It should without incurring gift taxes. With DOMA invalidated, the gift tax “marital not be construed as legal advice or a legal opinion on any specific facts or exemption” should apply to married same-sex couples. Married same-sex couples circumstances, and does not create an attorney-client relationship. will not have to file a federal gift tax return if one spouse transfers a home, other property, or cash to the other spouse. For more information about gift taxes, Because sound legal advice must necessarily take into account all relevant consult your tax advisor. facts and developments in the law, the information you will find in this guidance is not intended to constitute legal advice or a legal opinion as to If you made one or more substantial gifts to a spouse of the same sex before any particular matter. DOMA was invalidated and filed a federal gift tax return, you should

Any tax advice included in this document was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code.

FOR MORE INFORMATION, CONTACT GAY & LESBIAN ADVOCATES & DEFENDERS glad.org

LAMBDA LEGAL lambdalegal.org

AMERICAN CIVIL LIBERTIES UNION aclu.org/lgbt

NATIONAL CENTER FOR LESBIAN RIGHTS nclrights.org